Editing Transfer payment

{{Short description|Governmental wealth redistribution}}
[[File:Transfer payments as a percent of federal revenue.webp|thumb|325px|Transfer payments to (persons) as a percent of federal revenue in the [[United States]]]]
[[File:Transfer payments to persons + business.webp|thumb|325px|Transfer payments to (persons + business) in the United States]]

In [[macroeconomics]] and [[finance]], a '''transfer payment''' (also called a '''government transfer''' or simply '''fiscal transfer''') is a [[redistribution of income and wealth]] by means of the [[government]] making a payment, without [[Goods and services|goods or services]] being received in return (in contrast to [[financial transaction]]). These kind of payments are one-sided in nature, i.e. one party enjoys economic benefits from the other party. These payments are considered to be non-exhaustive because they do not directly absorb [[Factors of production|resources]] or create [[Output (economics)|output]].<ref>{{cite web |url= http://www.economist.com/economics-a-to-z/t#node-21529382 |title=Economics A–Z terms beginning with T –transfer  |first= Matthew |last=Bishop |work=The Economist |year=2012 |quote=Payments that are made without any good or service being received in return. Much Public Spending goes on transfers, such as pensions and WELFARE benefits. Private-sector transfers include charitable donations and prizes to lottery winners. |access-date=11 July 2012}}</ref> Examples of transfer payments include [[welfare (financial aid)|welfare, financial aid]], [[social security]], and government [[Subsidy|subsidies]] for certain [[business]]es.

Unlike the [[Trade|exchange]] transaction which mutually benefits all the parties involved in it, the transfer payment consists of a donor and a recipient, with the donor giving up something of value without receiving anything in return. Transfers can be made both between individuals and entities, such as private [[Company|companies]] or [[Government agency|governmental bodies]]. These transactions can be both voluntary or involuntary and are generally motivated either by the [[altruism]] of the donor or the malevolence of the recipient.<ref>{{Citation|last=Lampman|first=Robert J.|chapter=Transfer Payments|date=2016|pages=1–3|publisher=Palgrave Macmillan UK|language=en|doi=10.1057/978-1-349-95121-5_1755-1|isbn=9781349951215|title=The New Palgrave Dictionary of Economics}}</ref>

For the purpose of calculating [[gross domestic product]] (GDP) by expenditure method, [[government spending]] does not include transfer payments, which are the reallocation of money from one party to another rather than expenditure on newly produced goods and services.<ref name="HallLieberman2012">{{cite book |last1=Hall |first1=Robert E. |last2=Lieberman |first2=Marc |title=Macroeconomics: Principles and Applications |chapter-url=https://books.google.com/books?id=GsH6CAAAQBAJ&pg=PA145 |date=2012 |publisher=Cengage Learning |isbn=978-1-111-82235-4 |pages=145 |chapter=Chapter 6: Production, Income, and Employment}}</ref>

== Criticism ==
A criticism of transfer payments is that they do not produce outcomes that are economically advantageous. Governments pool [[tax]]es and other [[Government revenue|sources of revenue]] together and spend the money to further a certain agenda. Some of the spending pays for goods and services, such as buildings, equipment, and government worker salaries. These expenditures are exchanges in which money is traded for something with a recognized value. The payments may be viewed as boosting [[industrial activity]] and [[employment]]. However, government transfer payments do not boost production or economic activity. For example, foreign aid does not necessarily prompt foreign trade.<ref>{{Cite book|title="Transfer Payments," Encyclopedia of Business and Finance|last=Evans|first=Kim Masters|publisher=Gale|year=2014|pages=750–752}}</ref> Additionally, some argue that [[welfare program]]s, such as unemployment benefits, reduce incentives to take paid work.

Furthermore, the macroeconomic effect of transfer payments is reduced in the lower income countries and regions/states. The reasons for such disparity are the following:<ref name=":1">{{Cite journal|last=Smeeding|first=Timothy M.|date=1977|title=The Antipoverty Effectiveness of In-Kind Transfers|journal=The Journal of Human Resources|volume=12|issue=3|pages=360–378|doi=10.2307/145496|issn=0022-166X|jstor=145496}}</ref>

* the level of transfer payments is subject to the fiscal capacities of the administering entity  
* the size of transfer payments is generally dependent on the previous earnings of the beneficiary 
* largest share of transfer payments is typically administered to the older age groups, which constitute to a smallest share of population of the lower income countries, regions or states

== Methods of payment ==

=== Cash ===
{{Main|Cash transfer}}
More than 100 million people worldwide receive a government transfer payment.{{Citation needed|date=September 2021}} Examples of payments can be social aids to alleviate poverty or social insurance benefits by participating in social security systems. It is estimated that 90% of high-income nations make these payments via electronic transfer methods, whereas over half of the world's developing countries utilizes paper payments such as cash or checks.{{Citation needed|date=September 2021}} Transfer payment via cash is the most popular method of transferring benefits to beneficiaries. However, cash transfer programs are constrained by three factors: financial resources, institutional capacity, and ideology, particularly in countries in the [[Global South]].<ref>{{Cite journal|last=Slater|first=Rachel|last2=Farrington|first2=John|date=November 27, 2009|title=Cash Transfers: Targeting|url=http://217.161.13.39/resources/details.asp?id=3505&title=social-cash-transfers-targeting-project-briefing|journal=Overseas Development Institute|url-status=dead|archive-url=https://web.archive.org/web/20110704190817/http://217.161.13.39/resources/details.asp?id=3505&title=social-cash-transfers-targeting-project-briefing|archive-date=July 4, 2011}}</ref> Many governments in poorer countries, where cash transfers could potentially have the most impressive impact, are often unwilling to implement such programmes due to fears of [[inflation]] and more importantly, [[Dependency theory|dependency]] on the transfers.<ref>{{Cite journal|last=McCord|first=Anna|date=November 2009|title=Cash Transfers and Political Economy in Sub-Saharan Africa|url=http://217.161.13.39/resources/details.asp?id=3509&title=cash-transfers-political-economy-sub-saharan-africa-project-briefing|journal=Overseas Development Institute|url-status=dead|archive-url=https://web.archive.org/web/20110704191415/http://217.161.13.39/resources/details.asp?id=3509&title=cash-transfers-political-economy-sub-saharan-africa-project-briefing|archive-date=2011-07-04}}</ref>

=== In-kind transfer ===
[[In-kind]] transfer payments consist of individual goods and services provided to households by governmental bodies and non-profit institutions serving households (NPISHs), which are either acquired on the market or produced as non-market output by governmental bodies or NPISHs.<ref>{{Cite web|url=https://stats.oecd.org/glossary/detail.asp?ID=2498|title=OECD Glossary of Statistical Terms - Social transfers in kind Definition|website=stats.oecd.org|access-date=2019-04-28}}</ref>

The items included are:

* Other social security benefits in kind (e.g. food stamps)
* Social assistance benefits in kind
* Transfers of individual non-market goods or services

== Social security benefit ==
Primarily, social security benefits are designed to provide income continuity to those persons who have retired from labour force because of either inability to work (physical disability or mental trauma), to find employment or due to old age (retirement).

These include, but are not limited to:<ref name=":1" /><ref>{{Cite web|url=https://www.ssa.gov/benefits/|title=Benefits {{!}} Social Security Administration|website=www.ssa.gov|language=en|access-date=2019-04-28}}</ref>

* Unemployment compensations
* Old age insurance
* Civil service pensions
* State and local government pensions
* Survivors benefits
* Supplemental Security Income

== By country ==
===Australia===
In Australia, the horizontal [[Fiscal imbalance in Australia|fiscal imbalance]] arises because of the mismatch between the tax revenues and government expenses for the various state and territorial governments.  This imbalance is addressed by a horizontal fiscal equalisation (HFE) policy overseen by the [[Commonwealth Grants Commission]].

===Canada===

In Canada, Federal-Provincial transfers usually refer to a system of payments from the federal government to the [[Provinces and territories of Canada|province]]s as part of Canada's "fiscal federalism" through explicit and implicit redistribution.<ref name="ucalgary_Tombe_2018"/> These transfers are intended to assist provinces with less fiscal capacity than others in providing comparable public services in all regions, including health and education.<ref name="ucalgary_Tombe_2018"/> Transfers include explicit programs such as [[equalization payments]], [[Canada Health Transfer]] (CHT) and the [[Canada Social Transfer]] (CST) (formerly the [[Canada Health and Social Transfer]]) and [[Territorial Formula Financing]]. There are also implicit transfers that result from federal taxation and spending decisions and policies.<ref name="ucalgary_Tombe_2018"/>

Canada's transfer payments originated in the [[British North America Act (1867)]]'s Sections 118 as provincial subsidies.<ref name="ucalgary_Tombe_2018"/> By 1907, these payments were altered as new provinces joined the Dominion.<ref name="ucalgary_Tombe_2018">{{citation |first=Trevor |last=Tombe |date=nd |title=Final, Unalterable (and Up for Negotiation): Federal-Provincial Transfers in Canada |series=Working Papers 2018-13 |work=University of Calgary |access-date=December 10, 2018 |url=https://econ.ucalgary.ca/sites/econ.ucalgary.ca.manageprofile/files/unitis/publications/1-9016260/Tombe_2018_CTJ_-_Transfers_in_Canada.pdf}}</ref> In a 1957 arrangement, poorer provinces received annual payments: Prince Edward Island received $2.5 million and the three provinces, Newfoundland, Nova Scotia, and New Brunswick each received $7.5 million.<ref name="ucalgary_Tombe_2018"/> These payments ended and were rolled into the 1967 equalization program intended to "enable each province to provide an adequate level of public services without resort to rates of taxation substantially higher than those of other provinces."<ref name="ucalgary_Tombe_2018"/>

In Canada, transfers payments are contentious and equalization formulas are often revised.<ref name="ucalgary_Tombe_2018"/> Implicit transfers through federal taxation, for example, are greater in higher income provinces such as British Columbia, Alberta, Saskatchewan, and Ontario and lower in provinces such as Manitoba, Quebec, and the Atlantic provinces. Canada measures average fiscal capacity of each province which varies widely. Alberta is the highest at $12,577 per person and PEI is the lowest at $6,013 per person. In 2016 federal income tax in Alberta was more than $8,000 compared to less than $3,000 in PEI. All provinces pay the same federal tax rates.<ref name="ucalgary_Tombe_2018"/>

Economist Trevor Tombe wrote that by 2018, transfer payments had become "complex arrangements" that are much larger than the original subsidies and are "more equally distributed".<ref name="ucalgary_Tombe_2018"/> By 2018, inter-provincial redistribution has decreased to less than 2% of Canada's GDP, its lowest in 60 years. In the early 1980s it was 3.5%.<ref name="ucalgary_Tombe_2018"/>

===China===

Since July 2011, existing regional and local social security schemes, including pooling arrangements, are gradually being unified under the country's first national law on social transfer payments. The government aims to establish a comprehensive, equitable, and unified pension system that covers both urban and rural residents by 2020. In 2016, the government decided to establish a unified health insurance system for both rural and non-salaried urban residents. The government has also announced that medical insurance and maternity insurance programs will be merged.<ref>{{Cite web|url=https://www.ssa.gov/policy/docs/progdesc/ssptw/2014-2015/asia/china.html|title=Social Security Programs Throughout the World: Asia and the Pacific, 2014: China|date=2014|publisher=US Social Security Administration}} {{PD-notice}}</ref>

===India===

India has four types of social transfer payments – old age and disability benefits, sickness and maternity benefits, work injury transfers, and unemployment benefits. Most sources of payments are employers (via [[provident fund]]s), and the government.<ref>{{Cite web|url=https://www.ssa.gov/policy/docs/progdesc/ssptw/2014-2015/asia/india.html|title=Social Security Programs Throughout the World: Asia and the Pacific, 2014: India|date=2014|website=Social Security Administration}}</ref>

===United States===

The U.S. still utilizes paper transfer payments in its Social Security administration as many recipients, particularly those in lower-income categories, are unbanked, i.e. do not have a bank account to facilitate direct deposits. However, the U.S. has been able to implement electronic transfer systems in its food stamps and education assistance programs.<ref name=":0">{{Cite journal|date=2012|title=General Guidelines for the Development of Government Payment Programs|url=https://siteresources.worldbank.org/FINANCIALSECTOR/Resources/General_Guidelines_Govt_Payment_Aug2012.pdf|journal=World Bank}}</ref>

==See also==
* [[Barnett formula]]
* [[Government budget]]
* [[Public finance]]
* [[Transfer payments multiplier]]
* [[Welfare state]]
* [[Workfare]]

==References==
{{Reflist|30em}}

== External links ==
* [https://www.fin.gc.ca/access/fedprov-eng.asp Department of Finance (Canada): Federal Transfers to Provinces and Territories]

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[[Category:Government in Canada]]
[[Category:Payments]]
[[Category:Taxation and redistribution]]